Enterprise resource planning (ERP) is not dead, although some people would certainly wonder how it managed to survive. ERP emerged in the 1960s, although it was only to earn its current moniker in the 1990s. It has always focused on business processes and driving business efficiency.
However, the ERP market has changed. Gone are the days when companies like SAP, PeopleSoft, JD Edwards and Oracle could sign multi-billion deals with greenfield clients. The high end of the market is saturated. While the vendors can rely on upgrades and maintenance contracts, and the associated annuity revenue for their survival, to really get ahead they need new victims... make that markets.
"My view on ERP right now," says Mincom Africa head Mike Evans, "is that it's a bit like Iraq: it seemed like a good idea at the time, but now that you're into it, you're wondering how to get out of it gracefully without having to undo what you've done or tell anyone about it."
Mincom supplies vertical ERP solutions for niche markets. "ERP has never delivered on its promises," he states, "and that the world has forgiven ERP has to be the biggest religious event ever."
Evans is not alone in his assertion that ERP has failed to deliver. Too many implementations have been over time, over budget, and underwhelming in delivering to the customer's expectation. On the other hand, as T-Systems' business manager Jean Roux points out, ERP has provided standardisation.
Legacy replacement
The notion that ERP has never worked is neither correct nor indicative of an understanding of the positive contribution to business success that ERP has had.
Derek Kudsee, SME and channel director, SAP Africa
"Look at companies like the banks, which have huge legacies from the last 25 years or so," he says. "The technology is becoming old and very dated, and these organisations are worried about what will happen in the next 10 years if these systems are not replaced. If they don't replace them, they have to change them. And to do that, they need people who intimately understand the business and the code. The code is expensive to maintain and the people aren't easy to come by.
"So, here comes ERP, which has standardised the places where you store different types of data. Someone with a modicum of experience of your business or system will now know exactly where to find X type of data. Applications like that bring a high degree of standardisation of people too. While ERP is so complex that no one can understand all the modules, you only need to find a consultant with expertise in his corner of the business application and he can find a spot where he can do support and develop his part of the application," Roux says.
SAP Africa SME and channel director Derek Kudsee is blunt: "The notion that ERP has never worked is neither correct nor indicative of an understanding of the positive contribution to business success that ERP has had in multiple industries over the last 30 years. While ERP implementations have been perceived as being very expensive, it may come as a surprise to some that 65% of SAP customers are either small or medium-sized businesses. ERP has evolved so significantly in the last five years that any company of any size can now afford the innovation in industry best practices that ERP affords potential customers.
"Where ERP has failed in the past, there has been a common theme of poor understanding of current business process, and unclear articulation of desired output. Complex projects, whether IT or any other industry, are always at risk when either of the current or desired state of business is unclear," he adds.
Enter the SME
ERP has never delivered on its promises. And that the world has forgiven ERP has to be the biggest religious event ever.
Mike Evans, head, Mincom Africa
That said, ERP is not the first thing that springs to mind when one considers SMEs in SA. This is more a question of definitions than perceptions. Companies like SAP and Gartner define an SME as having a turnover of less than $1 billion per year. By this standard, the bulk of companies in Africa are SMEs. And it is this SME market that the ERP vendors are now after.
Says John Olsson of Ability Solutions, which provides customisable financial and distribution software solutions: "At a product level, we have the big three competing and growing their business at a product level, either via acquisition or product mix or convergence. The reality is that they are all chasing the same business in SA.
"The net result," he says, "is a cluttered market with the big players having no choice but to move down and smaller players reacting by strategically targeting the enterprise part of the market. The result is that there is total confusion in the market over product selection, even from a single vendor. It simply becomes a technology choice between Microsoft versus Oracle versus SAP.
"At an implementation level, consolidation is also going to pose a threat to some vendors. The more established players are trying to buy local market share via acquisition. If you are just another VAR of product X, you will not survive. Today, companies need to differentiate themselves from their competitors, either via vertical industry experience, unique IP or the critical mass of an existing customer base which may be farmed."
Notes Mincom's Evans: "It's looking like we have a solution for a problem that doesn't exist anymore. If you look at implementations, vendors customise to suit specific customer needs, then asked the customer if they could incorporate that into the broader solution, which is why we now have big monoliths. Customers don't need 80% of the functionality. Open the bonnet of the big ERP [systems] and it's all in there. It adds complication, code, a maintenance headache and resource requirements in terms of the horsepower needed to run it. You need to separate out the bits that you need."
What SMEs want
While nobody would argue the ERP vendors need the SME market, the question must be posed: do SMEs need ERP?
<B>Choose your poison</B>
A Butler report released late in 2006 outlines factors companies should take into consideration when selecting an enterprise application.
The Butler report* says the first and foremost consideration is for organisations to have a clear business justification for going through the process of selecting an enterprise application. This may sound like a foregone conclusion, but companies often may be persuaded that an ERP system will solve all their problems, when a simpler and less fully-integrated system, plus some sensible business practices, might still be more beneficial for them given their current business processes.
"A major point," the report states, "is to clarify and document the business requirements that are desired to be satisfied by the new application. Checklists for functionality were put forward early in the history of packaged applications, but now that most vendors provide similar coverage - at least at the high level - this then becomes a far less reliable way to make a valid selection. Although functionality is still important, there are now other considerations, such as how much standard industry practice has been embodied into packaged applications, therefore providing a good way to do things and meet regulatory requirements."
Further, the report notes one area that is often not considered during software selection is how users will access the underlying data that gets rapidly created after a system has gone live. "One of the most common stories that we hear," says the report, "is that many applications are excellent at the transactional side of things, but very unfriendly when it comes to getting information out. This should be a vital consideration - being able to record information is of little value to management when trying to make decisions."
* Selecting an Enterprise Application, November 2006. Courtesy of Marketworks.
Says Softline Pastel CEO Steven Cohen: "For an SME to put in a traditional SAP system for a few million rand may be overkill. Companies like Pastel, with knowledge of the SME space, bring a flavour of ERP along. We know the market as we were born and grew up in it. We understand the mentality, what SME training and implementation budgets are, and we're used to that. These companies don't have the bucks to spend R100 000 implementing software. They also don't have guys running around who can take time off to do implementations and tweak it over the space of a month. SMEs need to get it done fast. The dynamics are very different."
As Computer Science Corporation's business development manager Peter Wolfe points out: "ERP gives [users] best practices developed from companies around the world. Rather than having nine points in a process cycle, have four or five, which give production improvement and cost savings. For smaller organisations, procedures were often developed using disparate processes and software. They may not be doing things in the most efficient or effective way possible, where the package vendors have spent years developing efficient ways to operate, and built improvements that they have found worldwide into their offerings."
Says Thabiso Sello, channel manager at Nfold: "What SMEs require is an ERP system that combines the modules and processes they do need into a single integrated system that runs off a single database. This enables the company's departments to easily share information and communicate, as it allows management to obtain live data from across the business, improving the planning and decision-making processes."
What will ultimately see one of the current contenders for the SME market crown triumph may be something as simple as knowing and understanding the customers, and delivering what they actually need. May the best player win...
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